Starting from Short-Run Equilibrium,the Following Occurs: Personal Income Taxes Are

question 61

Multiple Choice

Starting from short-run equilibrium,the following occurs: personal income taxes are cut,business taxes are cut,and labor productivity rises.What is the effect on the price level and Real GDP in the short run?

• A) Real GDP rises and the price level necessarily falls.
• B) Real GDP rises and the price level necessarily rises.
• C) Real GDP falls and the price level necessarily remains the same.
• D) Real GDP rises and the effect on the price level cannot be determined.
• E) Real GDP rises and the price level necessarily remains the same.

---

Definitions:

Purely Competitive Market

A market framework where numerous buyers and sellers exist, there's unrestricted access and departure, and the product is uniform, which results in participants accepting the market price as given.

Economic Profit

Profit calculated by subtracting both explicit and implicit costs from total revenues, providing a measure of the true economic performance of a venture.

Purely Competitive Market

A market structure characterized by a large number of small firms selling identical products, with no single firm able to influence market prices.

Total Fixed Costs

The sum of all costs that remain constant regardless of the level of production or sales, such as rent, salaries, or loan payments.